KUALA LUMPUR (March 11): A deterioration in Malaysia’s current account surplus in its balance of payment, which partly dragged on the ringgit, will reverse in the second half of 2024, said Australia & New Zealand Banking Group (ANZ).

The current account surplus is likely to widen again as global trade picks up and the completed foreign direct investment projects benefit exports, ANZ said in a note on Monday. The outlook for the financial account is less certain though Malaysia’s balance of payment should improve in aggregate, it said.

“We view the narrowing of the current account surplus as transitory,” ANZ said. “We expect it to reverse in the second half of the year.”

For more than two decades, Malaysia runs a current account surplus, which means that the country is earning more foreign exchange from goods and services exported than it is spending on imports, thanks to strong shipments of electrical and electronic products.

The current-account surplus, however, has narrowed in 2023 to 1.3% of gross domestic product, the lowest in more than a decade, amid portfolio outflows as investors and traders scrambled out when the ringgit’s interest rates fell lower than that of the greenback.  

The ringgit has fell to its fresh 26-year low against the US dollar in February before rebounding. The ringgit is still down 1.9% year-to-date, adding to 2023’s 4.3% decline.

“The ongoing improvement in the global technology cycle will flow through Malaysia’s exports,” the research house said. Terms of trade are also now improving — which means that Malaysian products are now commanding higher prices abroad — after having deteriorated through much of 2023, ANZ said.

However, the financial account deficit may persist due to “structural reasons” amid higher-for-longer US interest rates, ANZ flagged. The negative spread of ringgit over US dollar interest rates, for the first time in history, has “reduced the buffer MYR local markets have” against heightened global market volatility, it noted.

Still, policy measures announced so far, including calls for government-linked companies and government-linked investment companies to repatriate overseas earnings and convert them into ringgit, could support the ringgit, ANZ said.

“If implemented effectively, these gains could be significant,” ANZ said. “Not only is Malaysia a net creditor economy, the stock of non-reserve external assets is significant.”

Other measures policymakers could consider to deal with more persistent selling pressure include requiring exporters to convert their foreign currency proceeds on reversible basis with Bank Negara Malaysia to shore up the central bank’s reserves.

Further, Bank Negara Malaysia could also guide “short-dated onshore interest rates higher in a calibrated and possibly reversible manner”, ANZ added.